Monday, July 16, 2007

A report released Friday by the Tax Foundation reveals that the proposal to fund the State Children's Health Insurance Program (SCHIP) by increasing the federal cigarette excise tax hurts the poor more than other available funding options.

According to the report, raising the $35 billion needed to fund SCHIP by increasing the federal cigarette tax would impose an average tax increase of $249 for households in the bottom 20% income bracket. In contrast, relying on a corporate income tax increase to fund SCHIP would increase taxes in the lowest income bracket by only $41, and simply increasing individual income taxes to pay for SCHIP would cost the lowest-income households only $7 in extra tax.

The report concludes that "no other federal tax hurts the poor more than the cigarette tax. ... Not only are the payers of cigarette taxes poorer as a group than the payers of these other taxes, but there are fewer of them. In fact, the burden of the proposed cigarette tax hike on the lowest-earning 20 percent of households is 37 times heavier than it would be if the government raised the money with the federal income tax. Put another way, the proposed cigarette tax hike would hit the poor with the same force as cutting the Earned Income Tax Credit (EITC) by one-fourth." ...

"Taxing only cigarettes to finance higher spending on SCHIP has absolutely no justification in sound tax policy. Excise taxes on cigarettes should be used to compensate for the costs they impose on society. Taxes levied above and beyond that point may be politically expedient because smokers are unpopular, but they only serve to make the federal tax system less principled and more regressive."

The Rest of the Story

This analysis confirms my assertion, highlighted by Jacob Sullum in Hit&Run last week, that the proposed 61 cents per pack increase in the federal cigarette excise tax is not a sensible way to fund the expansion of the SCHIP program. As I argued: (1) it is a regressive tax that disproportionately hurts the poor; (2) it is unfair because the benefits do not accrue to those who bear the burden of paying the tax; (3) it is unacceptable because it makes children's health insurance dependent upon sustaining high levels of cigarette smoking; and (4) it removes any incentive for the federal government to substantially reduce cigarette consumption. The Tax Foundation analysis supports my contention that the tax is regressive as it disproportionately hurts the poor and that it is unacceptable because there are far better alternatives to fund SCHIP.

It is unfortunate that anti-smoking groups are incapable of anything other than knee-jerk support for any and all cigarette taxes. They have never met a cigarette tax increase that they didn't like, no matter who pays the tax, what the funds are used for, how regressive or unfair it is, how inappropriate the resulting fiscal dependence on smoking might be, and how sensible potential alternative funding sources, or alternative uses of the cigarette tax revenues might be.

As the Tax Foundation states, cigarette taxes should be used to compensate for the costs they impose on society. In other words, they should be used for smoking-related programs. For example, using cigarette tax revenues to fund expansion or improvement in treatment for smoking-related diseases makes sense from a tax policy perspective. It is fair, because the benefits accrue to precisely those who are paying the tax. It is sensible, because the money is being used to compensate for costs imposed specifically by smoking. It also avoids the problem of creating a dependence on continued smoking, because as smoking declines, the need for the revenue also declines, as there will be less smoking-related disease. To some extent, it is a self-regulating system.

In contrast, using the cigarette tax to fund SCHIP creates an unacceptable conundrum. If we reduce smoking, then we lose money that is needed to pay for children's health insurance. The more people continue to smoke, the fewer children who will have health insurance. As smoking rates fall, there is no direct decline in the need for children's health insurance, especially in the short-term.

I find it unfortunate that anti-smoking groups are so narrow-minded in their thinking that they do not seem capable of considering the broader implications of what they are supporting and the sensibleness of their proposal in light of available alternatives. It is as if these groups have blinders on which preclude them from seeing any issue or consideration other than smoking. They are blind to effects on the poor, fairness, and long-term implications, for example.

In my view, tobacco control was never intended to be a field all its own. It was intended to be a part of a broader public health perspective. Unfortunately, it is increasingly becoming separate from public health. It is becoming more and more narrow-minded.

It's time to take the blinders off. There's a whole world out there which we are not seeing.

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About Me

Dr. Siegel is a Professor in the Department of Community Health Sciences, Boston University School of Public Health. He has 32 years of experience in the field of tobacco control. He previously spent two years working at the Office on Smoking and Health at CDC, where he conducted research on secondhand smoke and cigarette advertising. He has published nearly 70 papers related to tobacco. He testified in the landmark Engle lawsuit against the tobacco companies, which resulted in an unprecedented $145 billion verdict against the industry. He teaches social and behavioral sciences, mass communication and public health, and public health advocacy in the Masters of Public Health program.